The below translation relates to an article originally published in Norwegian business newspaper, Finansavisen, on 26th September 2024. The original article can be accessed here.
Imagery and words: Anders Pedersen-Bjergaard
Currys is valued at 13.5 billion kroner on the London Stock Exchange. The stake in Elkjøp Nordics could be worth nearly the entire stock market value. "The stock is undervalued," says CEO Alex Baldock.
On Thursday, Currys hosted an investor meeting at Elkjøp’s headquarters in Nydalen. The entire Currys leadership team was present, along with the management teams from Elkjøp Nordics and Norway.
Going back to September 2020, it was revealed that Currys was exploring the possibility of listing a minority stake in Elkjøp Nordic. Two years later, the message had changed:
"We see greater opportunities to create more value in all our markets, including the Nordics. The group’s capital position has significantly strengthened. Therefore, we have decided to retain our strong Nordic business as a wholly owned part of the group and will not pursue a partial stock market listing," Currys wrote in a stock exchange announcement.
Thus, there was anticipation about what the Currys management would say during the Oslo visit. After two hours of presentations on Elkjøp’s strategy and financial figures, it was time for a Q&A session. One investor posed the following question to CEO Alex Baldock:
"If you had listed Elkjøp Nordics in Sweden, the valuation would have been higher than Currys' current value. So my question is simple: when will Nordic investors have the opportunity to invest in Elkjøp, either through a stock market listing of a minority stake in Sweden or a secondary listing?"
"As you know, we considered listing a minority stake in Elkjøp a few years ago. There was great interest in owning the company, but less interest in investing in just a minority stake, so we decided not to move forward with the plans at that time. You’ve heard us talk about our focus on restoring the business to its historical levels of profitability and cash flow. However, I can assure you that there are currently no plans to spin off or sell Elkjøp," Baldock said.
"The stock is undervalued"
In response to the question, Baldock also spoke about the significant cost synergies the group has in IT, procurement, and outsourcing.
"As for your sum-of-the-parts assessment, we agree. The stock is undervalued at the moment, whether one looks at Elkjøp in the Nordics or our business in the UK. But instead of complaining about it, we are focusing on increasing cash flow and making Currys a more attractive investment. So, if you want to invest in Elkjøp, you can do so by investing in Currys as a whole," the CEO said.
Currys is one of the largest retailers of consumer electronics in the UK and Ireland. Additionally, Currys owns Elkjøp Nordics, Carphone Warehouse, Knowhow, and Team Knowhow.
On the London Stock Exchange, Currys is valued at £957 million, equivalent to 13.5 billion kroner. This corresponds to an EV/Sales multiple of 0.1 based on 2023 figures, which is significantly lower than comparable companies.
For example, the EV/Sales multiple for Norway’s Komplett based on 2023 figures is 0.22, while US-based Best Buy has a multiple of 0.48. In Sweden, Dustin trades at 0.3 times sales revenue.
Margin squeeze
In 2023/2024, Currys had a revenue of £8.476 billion, while free cash flow and adjusted pre-tax profit amounted to £82 million and £118 million, respectively. The Nordic business accounted for 41 percent of the revenue in 2023/2024, equivalent to £3.5 billion or 49 billion kroner.
Over the past two years, Elkjøp Nordics’ margins have taken a hit due to aggressive price wars, full inventories, challenging supply chains, a weak kroner, and high interest rates.
In 2021/2022, Elkjøp Nordic had a free cash flow of £125 million, while the cash flow in the last two fiscal years amounted to £14 million and £48 million.
Elkjøp Nordics anticipates that free cash flow will return to £100 million, without assuming a better market. Broker estimates suggest that operating margins for the Nordic business will improve – though not to pre-pandemic levels.
MADE A PRESENTATION: Elkjøp Nordics CEO Fredrik Tønnesen gave a presentation on Thursday, showcasing the flagship Lørenskog Megastore to the attendees.
Value: 10-12 billion
Finansavisen has spoken with investors who believe Currys’ major problem is that British investors do not value Elkjøp Nordics, which largely operates with a business model focused on physical stores.
In the UK, online shopping is much more widespread, and investors shy away from traditional stores. Currys investors in the UK also tend to have a negative view of the Nordic economy, likely reinforced by Elkjøp Nordics' margin squeeze in recent years.
According to investors, there are two paths to unlocking Currys’ value: either by listing a minority stake in Elkjøp Nordics or through a secondary listing.
If one applies Komplett’s multiples to Elkjøp Nordics, the valuation would be around 10 to 12 billion kroner. In comparison, Currys is valued at 13.5 billion kroner, which means that the Elkjøp stake is valued at almost nothing.
Earlier this year, US investment firm Elliott Investment Management made an offer for Currys, which was rejected. The highest bid was 67 pence per share. Chinese e-commerce giant JD.com has also shown interest in Currys, though no formal bid has materialised.
Seeing significant upside
One of the analysts following Currys is Adam Tomlinson from Berenberg. He has a buy recommendation with a price target of 125 pence, compared to the current price of 84.50 pence.
"I believe Elkjøp is a very undervalued and overlooked asset within the Currys group. Part of the reason for this is that Currys is listed in the UK, where many British fund managers are familiar with the Currys brand but may not have heard of Elkjøp in the Nordics. Therefore, today’s event was important to highlight Elkjøp, which is a fantastic brand," says Adam Tomlinson.
Should Currys list Elkjøp?
"Given Elkjøp’s development and how turbulent the market has been in recent years, the foundation is definitely laid for a solid recovery as the macro situation improves. In addition, there are many incremental gains to be made from innovations already on the way. Significant growth lies ahead, which will generate free cash flow, as the company has already demonstrated in the past. Listing the company now would not give full value, as there is still much potential yet to be realised," Tomlinson says.